Overall inflation accelerated 2.4 per cent in December from 2.2 per cent, but the

Bank of Canada’s preferred core measures decelerated, leaving economists split on whether the central bank

should hold or cut rates as market bets evaporate that the next move will be a hike. Statistics Canada attributed the jump in the consumer price index (CPI) to the federal government’s GST/HST holiday from mid-December 2024 to mid-February 2025, which lowered prices on a select group of items. Economists tracked by Bloomberg had called for inflation to hold steady at 2.2 per cent.

Citigroup Inc. correctly called for CPI to rise to 2.4 per cent, while Toronto-Dominion Bank, Bank of Montreal and Capital Economics Ltd. had calls of 2.3 per cent.

The Bank of Canada’s preferred measures of inflation , core trim and median, cooled — the former to 2.7 per cent and the latter to 2.5 per cent — from 2.8 per cent in November. Both measures strip out the effect of taxes.

Markets had previously increased bets for the Bank of Canada’s next move to be a hike, but those bets were trimmed back to about 43 per cent by year-end from 80 per cent.

Here’s what economists think the inflation data mean for the Bank of Canada and interest rates.

‘Non-threatening’: Rosenberg Research

“There is no case here for the Bank of Canada to even think about raising rates,” David Rosenberg, founder of

Rosenberg Research Associates Inc. , said in a note, adding that monthly inflation has registered at a “nonthreatening” 0.3 per cent seasonally adjusted rate for the past six months.

Meanwhile, core inflation, which excludes food and energy, has yet to breach the 0.3 per cent level once during the same time period.

“The year-over-year trend may be at 2.5 per cent, but the fact that the six-month trajectory is down to nearly a two per cent annual rate is testament to the disinflation momentum underway,” he said.

Inflation was “benign” in a wide set of categories, including household operations and furnishings, clothing, transportation, shelter, recreation and health and personal care, coming in between -0.1 per cent and 0.2 per cent month over month.

Rosenberg said year-over-year real gross domestic product (GDP), which excludes inflation, is barely above zero, headline CPI is within the Bank of Canada’s target zone and full-time job creation has slowed to 0.7 per cent year over year.

Then there are the ongoing threats posed by United States tariffs.

“While the Bank of Canada may well stay on the sidelines for now, the fact that underlying inflation is staying relatively benign tells us the balance of risks remains towards more easing, not a tightening,” he said.

Contracting economy: Capital Economics

“The second consecutive below-target monthly gain in CPI-trim and CPI-median should further reduce speculation that the Bank of Canada will need to hike interest rates this year,” Stephen Brown, deputy chief North America economist at

Capital Economics Ltd. , said in a note. Capital Economics estimated the three-month annualized rate for trim and median are both at 1.7 per cent, below the Bank of Canada’s inflation target of two per cent.

Brown said the two core measures came in at an average pace of 0.07 per cent month over month, below the 0.17 per cent increase needed to hit above-target inflation.

“That makes us even more confident in our view that the average annual rate will decline from the current 2.6 per cent to two per cent by the summer, rather than remaining above two per cent well into 2027 as the Bank of Canada currently forecasts,” he said.

Capital Economics said the possibility of another interest rate cut is rising due to slowing inflation and indications that Canada’s economy might have contracted in the fourth quarter.

‘Mixed report’: BMO

“This was a mixed report, as some measures of core inflation eased to their slowest pace in years,” Douglas Porter, chief economist at

BMO Economics , said in a note, referring to the twin slowdowns in the core CPI-median and -trim measures.

He said the main takeaway from the CPI data is that “after a year of some wide divergences,” most of the main measures of inflation are honing in on the Bank of Canada view for underlying inflation of 2.5 per cent this year. He has a similar call for 2026, while inflation rose 2.1 per cent in 2025.

“Given the big weight of some special factors in this messy month, we believe the mild core news in this report counters some of the bad news,” Porter said, with the bad news including the rise in headline CPI despite a year-over-year drop in gasoline prices of 13.8 per cent.

Still, he said the Bank of Canada will be “encouraged” by the slowdown in core measures, but not enough to make more interest rate cuts ahead possible.

“It would take a serious deterioration in the economy and some further signs of core inflation decelerating to again open the door for renewed policy easing — we’re simply not there yet,” he said.

Won’t be ‘swayed’: Oxford Economics

“The Bank of Canada won’t be swayed by month-to-month fluctuations in headline inflation due to base-year effects,” Michael Davenport, senior economist at

Oxford Economics Ltd. , said in a note, referring to the GST/HST tax holiday. There’s still volatility ahead as Canada works its way through a few more months of price comparisons with the GST/HST tax break. Once that is over, he said the elimination of the consumer carbon tax in April 2025 will drop out of the year-over-year CPI comparisons, so energy inflation will start to rise in April.

He expects the Bank of Canada to look past all that noise and focus on “underlying inflation.”

Davenport said there remains “excess slack” in the economy, as shown by the recent jobs numbers, that should keep “underlying inflation at bay” and eventually slow headline inflation to the Bank of Canada’s two per cent target by early next year.

“With ongoing upside risks to inflation from U.S. tariffs and elevated trade policy uncertainty, we continue to believe the Bank of Canada will hold rates at 2.25 per cent until early 2027,” he said.

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